transaction cost economics explore how companies survive in a competitive business environment. Ellram et al. (2008) say such firms differentiate themselves by replacing coordination functions using price mechanisms. The manager has an absolute authority over this activity. The transaction cost theory focuses on this authority by evaluating the cost of outsourcing and the cost of undertaking business processes internally. Neves and Hamacher (2013) say this theory also explains why companies exist and why they outsource their services to third parties. It argues that most companies should outsource their services if it is cheaper to do so (Neves & Hamacher 2013).

The main assumption of this theory is that most companies strive to reduce the cost of exchanging its resources with the environment. Similarly